Moody's downgrades Russia's 3 top lenders

Moody’s cut by a notch the ratings of Russia’s state lending giants – Sberbank and VTB – with Russian Agricultural Bank seeing a two notch downgrade. The agency said the Russian government was less prepared to back the lenders than it was in 2007 - 08.

Moody’s rating service downgraded the long-term senior debt and
deposit ratings of Russia’s key state lender Sberbank
(to Baa1 from A3), Bank VTB and VTB24 (to Baa2 from Baa1) and
Russian Agricultural Bank (to Baa3 from Baa1). The outlook for
these ratings is stable.

The agency pointed to Russia’s over reliance on high oil prices
and reduced Reserve Fund and National Wealth Fund. The break even
price of around $105 per barrel the federal budget now relies on
is overly optimistic and compares to just $40 in 2008.

“Although Moody's central scenario anticipates elevated oil
prices in 2013, the rating agency also sees demand-side tail
risks for oil prices related to the possibility of (1) a more
pronounced and prolonged recession in the euro area, and (2)
slower-than-expected growth in major emerging economies,”
Moody’s said in its statement.

And the accumulated financial stock in the two funds went down to
8.5% of the country's GDP at mid-2013, from 16.1% in 2008. “As
such, fiscal reserves now provide a somewhat weaker layer of
protection to the banking system,” the agency said. “While
the government's new fiscal rule (spending cap) should help to
contain expenditures, this rule has not been tested yet,”
Moody’s added. The fiscal rule is used to calculate affordable
budget expense limits, which is determined by the average oil
price.

However, the banks said the downgrade wasn’t going to affect
either their profile nor operations. “VTB24 isn’t expecting
significant consequences for the rating cut. This is largely a
formal indicator and it can’t effect either the bank’s stability,
nor its business,” the bank’s representative told Vedomosti
daily.

And Russian Agricultural Bank is the state’s key instrument to
support the country’s agriculture. This means that state support
will always remain in place and at a required level, as well as
be the priority, as Vedomosti quotes its source in the bank.

The Moody’s action comes as at the end of the review for
downgrade initiated in April 2013.